Economics, Econometrics and Finance
3 years ago

New invariance theorems make detecting asset price bubbles easier than ever!

SSRN Electronic Journal
Asset Price Bubbles: Invariance Theorems*
Robert A. Jarrow, Philip Protter, Jaime San Martı́n, Johnson School Working Paper Series

Paper Summary

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The paper presents a way to test for asset price bubbles without needing to estimate certain measures. By focusing on the price process' quadratic variation under statistical probability, the test can determine if a bubble exists in the market. Additionally, a new type of price process with specific characteristics is introduced to help with this analysis.